Public Investment Targeting in Rural Central America

This paper uses an asset-base framework to analyze the determinants of rural growth and poverty reduction for the three poorest countries in Central America: Guatemala, Honduras and Nicaragua. High inequalities in the distribution of productive assets in all three countries constrain how the poor share in the benefits of growth, even under appropriate policy regimes. Heterogeneous conditions require complementary analysis of spatial determinants of well-being, analysis of household-level assets, and how household livelihood strategies, conditioned on spatial attributes and asset bases, determine well-being outcomes. Using a combination of GIS mapping techniques and quantitative household analysis, we generate a description of rural territories that recognizes the differential effects of policies and asset bundles across space and households. We identify the asset combinations that matter most to raise household well-being and take advantage of poverty-reducing growth. In all three countries, investments have generally been directed toward more favored areas. But area economic potential does not automatically translate into improved well-being for all households. We found a strong overlap between economic potential, poverty rates and poverty densities in Guatemala and Honduras but not in Nicaragua. This implies that while in Guatemala and Honduras public investments may be targeted toward the Western Altiplano and the hillside areas respectively, in Nicaragua high poverty rates but low poverty densities in the Atlantic zone, and somewhat lower poverty rates but high poverty densities near Managua and other urban centers in the Central and Pacific regions, present a trade-off which makes targeting decisions more complicated.